For the third quarter of 2018, net sales were $296.8 million, compared with $261.8 million in the prior-year period, a 13.4% increase year-over-year. Unfavorable currency exchange rates negatively impacted net sales by $6.2 million for the quarter as compared to the prior year. The Company’s skin and personal care product category contributed approximately $9.5 million in incremental sales for the quarter. The Company’s total number of active Customers increased 9.2% year-over-year to 615,000.

Net earnings for the third quarter increased 30.6% to $31.0 million, compared with net earnings of $23.8 million reported in the prior-year period. Earnings per diluted share increased to $1.24, an increase of 27.8% on a year-over-year basis. The increase in net earnings was due primarily to higher net sales and lower relative operating expenses compared to the prior year period. Weighted average diluted shares outstanding were 25.0 million for the third quarter of 2018, compared with diluted shares of 24.6 million in the prior-year period.

“We continue to see strong momentum in most of our regions, which is reflected in our double-digit third quarter growth,” said Kevin Guest, Chief Executive Officer. “Our growth strategies and investments into the business are producing results and our team remains committed to providing the best overall customer experience at USANA.”

During the quarter, the Company repurchased 177,724 shares of common stock for an investment of $22.6 million. The Company ended the quarter with no debt, $239.8 million in cash and cash equivalents, and an additional $81.7 million invested in short-term securities. As of September 29, 2018, there was $24.4 million remaining under the current share repurchase authorization.

Regional Results

Net sales in the Asia Pacific region increased by 20.2% to $239.6 million for the third quarter of 2018. The total number of active Customers in the Asia Pacific region increased by 13.9% year-over-year. Within Asia Pacific, net sales increased:

22.6% in Greater China;

26.7% in North Asia; and

12.3% in the Southeast Asia Pacific region.

Sales growth in Greater China was primarily driven by a 16.7% increase in Active Customers in Mainland China, while sales growth in North Asia resulted primarily from 15.6% Active Customer growth in South Korea. Sales growth in Southeast Asia Pacific was driven by 24.0% Active Customer growth in Malaysia, and 8.6% growth in the Philippines.

Net sales in the Americas and Europe region for the third quarter of 2018 decreased by 8.5% to $57.2 million, and active Customers in this region declined 5.1%. The Company’s new European markets, which opened during the second quarter of 2018, contributed positively to the region’s third quarter performance.

“During the quarter, we hosted thousands of Associates here in Salt Lake City for our annual International Convention,” continued Mr. Guest. “In China, we launched our new skincare line, Celavive, which accounted for $4.1 million in incremental sales of the $28.5 million year-over-year growth in this market. We are now turning our attention to our China national sales meeting to be held in Macau in late November where, for the first time, we will offer products for sale at the event.”

Tariffs and Trade Policies

While the Company continues to evaluate the evolving tariffs and trade policies between the United States and other countries, the Company does not currently expect these tariffs and trade policies, as they currently exist, to have a material impact on its future operating results. Additional changes in tariffs and trade policies may have a negative impact on currency exchange rates and economic conditions generally, which could negatively affect the Company’s results of operations.

Outlook

Chief Financial Officer, Doug Hekking, commented, “Our business generated strong third quarter net sales, despite pressure from a strengthening U.S. dollar on both a sequential quarter and year-over-year basis. Although favorable currency exchange rates benefited our operating results in the first half of 2018, the U.S. dollar strengthened more than expected in the third quarter and we anticipate a similar pattern in the fourth quarter. Consequently, we have again reduced the estimated benefit to net sales from currency for the full year. This considered, and with only one quarter remaining in fiscal 2018, we have tightened our revenue outlook. Our operating results continue to be strong and, accordingly, we have tightened our range for diluted earnings per share and increased the top-end of our outlook.”

The Company is updating its outlook for 2018 as follows:

Consolidated net sales between $1.185 and $1.20 billion, previously between $1.17 and $1.20 billion; and

Earnings per share between $5.00 and $5.15, previously between $4.75 and $5.05.

The Company’s full-year outlook reflects:

A year-over-year benefit to net sales of approximately $16 million from favorable currency exchange rates, which was previously estimated at $29 million;

An estimated operating margin between 15.7% and 15.9%;

An effective tax rate of approximately 34%; and

An annualized diluted share count of approximately 24.8 million.

Increased Share Repurchase Authorization

The Board of Directors has authorized up to $150 million in funding for share repurchases by the Company of its outstanding common stock. This authorization is inclusive of the $24.4 million that was remaining under the prior authorization as of the end of the second quarter. Repurchases may be made from time to time, in the open market, through block trades or otherwise. The number of shares to be purchased and the timing of purchases will be based on market conditions, the level of cash balances, general business opportunities, and other factors. Additional share repurchases would represent upside to the revised EPS outlook the Company issued today.

China Preferred Customers

The Company has had a long-standing Preferred Customer program in China but, due to certain attributes of that program, had historically reported China Preferred Customers as Associates. The Company began reporting China Preferred Customers as Preferred Customers with its results for the fourth quarter of 2017.

Internal Investigation of China Operations

As the Company first disclosed in February 2017, it is voluntarily conducting an internal investigation of its China operations, BabyCare Ltd. The investigation focuses on compliance with the Foreign Corrupt Practices Act (“FCPA”) and certain conduct and policies at BabyCare, including BabyCare’s expense reimbursement policies. The Audit Committee of the Board of Directors has assumed direct responsibility for reviewing these matters and has hired experienced counsel to conduct the investigation. While the Company does not believe that the subject amounts are quantitatively material, or will materially affect its financial statements, it cannot currently predict the outcome of the investigation on its business, results of operations, or financial condition. The Company has voluntarily contacted the Securities and Exchange Commission and the United States Department of Justice to advise both agencies that an internal investigation is underway and intends to provide additional information to both agencies as the investigation progresses. The Company cannot currently predict the duration, scope, or result of the investigation.

Non-GAAP Financial Measures

Constant currency net sales, earnings, EPS and other currency-related financial information (collectively, “Financial Results”) are non-GAAP financial measures that remove the impact of fluctuations in foreign-currency exchange rates and help facilitate period-to-period comparisons of the Company’s Financial Results and thus provide investors an additional perspective on trends and underlying business results. Constant currency Financial Results are calculated by translating the current period's Financial Results at the same average exchange rates in effect during the applicable prior-year period and then comparing this amount to the prior-year period's Financial Results.

Conference Call

The Company has posted the “Management Commentary, Results and Outlook” document on the Company’s website (http://ir.usana.com) under the “Investor Relations” section of the site. USANA will hold a conference call and webcast to discuss today’s announcement with investors on Wednesday, October 24, 2018 at 11:00 AM Eastern Time. Investors may listen to the call by accessing USANA’s website at http://ir.usana.com. The call will consist of brief opening remarks by the Company’s management team, before moving directly into questions and answers.

About USANA

USANA develops and manufactures high-quality nutritional supplements, healthy foods and personal care products that are sold directly to Associates and Preferred Customers throughout the United States, Canada, Australia, New Zealand, Hong Kong, China, Japan, Taiwan, South Korea, Singapore, Mexico, Malaysia, the Philippines, the Netherlands, the United Kingdom, Thailand, France, Belgium, Colombia, Indonesia, Germany, Spain, Romania, and Italy. More information on USANA can be found at www.usana.com.

Safe Harbor

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Our actual results could differ materially from those projected in these forward-looking statements, which involve a number of risks and uncertainties, including global economic conditions generally, reliance upon our network of independent Associates, the governmental regulation of our products, manufacturing and marketing risks, adverse publicity risks, risks associated with our international expansion and operations, and risks associated with the internal investigation into BabyCare’s operations. The contents of this release should be considered in conjunction with the risk factors, warnings, and cautionary statements that are contained in our most recent filings with the Securities and Exchange Commission.

USANA Health Sciences, Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

Quarter Ended

Nine Months Ended

30-Sep-17

29-Sep-18

30-Sep-17

29-Sep-18

Net sales

$

261,765

$

296,767

$

774,151

$

890,225

Cost of sales

47,135

51,877

133,691

151,243

Gross profit

214,630

244,890

640,460

738,982

Operating expenses

Associate incentives

116,010

130,264

350,195

392,416

Selling, general and administrative

67,263

69,112

193,653

206,781

Earnings from operations

31,357

45,514

96,612

139,785

Other income (expense)

690

1,012

1,632

2,262

Earnings before income taxes

32,047

46,526

98,244

142,047

Income taxes

8,278

15,486

29,858

48,154

NET EARNINGS

$

23,769

$

31,040

$

68,386

$

93,893

Earnings per share - diluted

$

0.97

$

1.24

$

2.75

$

3.80

Weighted average shares outstanding - diluted

24,588

25,001

24,871

24,705

USANA Health Sciences, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)

As of

As of

ASSETS

30-Dec-17

29-Sep-18

Current Assets

Cash and cash equivalents

$

247,131

$

239,751

Securities held-to-maturity, net

-

81,673

Inventories

62,918

81,110

Prepaid expenses and other current assets

30,110

32,228

Total current assets

340,159

434,762

Property and equipment, net

102,847

93,555

Goodwill

17,417

16,829

Intangible assets, net

35,154

32,217

Deferred income taxes

2,859

3,771

Other assets

20,833

18,247

Total assets

$

519,269

$

599,381

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities

Accounts payable

$

11,787

$

14,467

Other current liabilities

129,396

138,419

Total current liabilities

141,183

152,886

Deferred income taxes

13,730

9,848

Other long-term liabilities

1,146

1,058

Stockholders' equity

363,210

435,589

Total liabilities and stockholders' equity

$

519,269

$

599,381

USANA Health Sciences, Inc.

Sales by Region

(unaudited)

(in thousands)

Quarter Ended

30-Sep-17

29-Sep-18

Change from prior year

Currency impact on sales

% change excluding currency impact

Asia Pacific

Greater China

$ 131,273

50.1%

$ 160,932

54.2%

$ 29,659

22.6%

$ (3,221)

25.0%

Southeast Asia Pacific

52,310

20.0%

58,770

19.8%

6,460

12.3%

(1,942)

16.1%

North Asia

15,708

6.0%

19,899

6.7%

4,191

26.7%

182

25.5%

Asia Pacific Total

199,291

76.1%

239,601

80.7%

40,310

20.2%

(4,981)

22.7%

Americas and Europe

62,474

23.9%

57,166

19.3%

(5,308)

(8.5%)

(1,236)

(6.5%)

$ 261,765

100.0%

$ 296,767

100.0%

$ 35,002

13.4%

$ (6,217)

15.7%

Active Associates by Region(1)

(unaudited)

As of

30-Sep-17

29-Sep-18

Asia Pacific

Greater China

104,000

36.4%

111,000

36.8%

Southeast Asia Pacific

90,000

31.5%

95,000

31.4%

North Asia

23,000

8.0%

28,000

9.3%

Asia Pacific Total

217,000

75.9%

234,000

77.5%

Americas and Europe

69,000

24.1%

68,000

22.5%

286,000

100.0%

302,000

100.0%

Active Preferred Customers by Region (2)

(unaudited)

As of

30-Sep-17

29-Sep-18

Asia Pacific

Greater China

181,000

65.3%

219,000

70.0%

Southeast Asia Pacific

16,000

5.8%

20,000

6.4%

North Asia

11,000

4.0%

11,000

3.5%

Asia Pacific Total

208,000

75.1%

250,000

79.9%

Americas and Europe

69,000

24.9%

63,000

20.1%

277,000

100.0%

313,000

100.0%

(1) Associates are independent distributors of our products who also purchase our products for their personal use. We only count as active those Associates who have purchased from us any time during the most recent three-month period, either for personal use or resale.

(2) Preferred Customers purchase our products strictly for their personal use and are not permitted to resell or to distribute the products. We only count as active those Preferred Customers who have purchased from us any time during the most recent three-month period. China utilizes a Preferred Customer program that has been implemented specifically for that market.